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Posts Tagged ‘Economics

Stagflation and pretty graphs?

For two decades after the end of WWII, economists, bureaucrats and politicians were pretty sure that they’d nailed the problems of controlling a capitalist economy.

The ruling theory was Keynesianism, named after the famous economist John Maynard Keynes, whose key insight in the 1930’s was that in times of economic recession, and especially depression such as The Slump of the 1930’s, governments should not cut back on their spending but increase it.

Prior to that governments had always taken the same attitude towards a shrinking economy that households and businesses did: you cut spending in line with your falling revenues, tax in the case of government. Keynes argued that this was the wrong thing for governments to do; they were different because they controlled the creation of credit so debt was not the same threat to them. They could go into debt, perhaps quite a lot of debt, and keep spending money to keep the economy afloat until the private sector came out of its shell and started investing and spending again. The idea was not so much to inflate the economy as to stop a blackhole effect where the shrinkage fed on itself.

At least in the USA under FDR from 1930 on, and here in New Zealand under the First Labour government, the theory seemed to work although there were a few problems with the argument in that period:

  • The NZ economy was already recovering by the time Labour gained power in 1935 and its Finance Minister Walter Nash, although pushing big increases in spending, never let NZ go into the sort of debt Keynes proposed.
  • The US recovery stalled completely in 1937, with unemployment rising to 17% again. FDR’s own Secretary of the Treasury was appalled at the result after so much money had been blown. In the end it was the industrial powering up for WWII that got the economy growing and flattened unemployment.
  • Australia and Britain simply never took the Keynesian approach, yet there was no evidence that their depressions were any worse, nor their recoveries any slower than those of the US and NZ.
  • In 1946 Keynesian economists were terrified at the prospect of eleven million military men returning home to a nation where the government was already cutting spending in the form of ending huge military contracts for tanks, planes and guns. Their fears grew when a newly installed Republican House and Senate promptly cut spending even further in 1947. And from a GDP approach you could also see their point as it contracted by an incredible 11.6% in 1946 and another 1% in 1947. By contrast it shrank by 12.9% in 1932. But far from a second Great Depression the post-war US economy took off and kept powering away, with only occasional mild recessions for more than twenty years.
  • The so-called “neo-Keynesians” of the Kennedy Administration, figured that if Keynes theory could reduce unemployment down to 5% there was no reason why more Keynesian stimulus couldn’t soak up that last portion. An economy running at 100% all the time. BZZZZZTT: hitting-the-edge-of-the-envelope time again and Hello, late 60’s US inflation.

Still, the Keynesian theory settled in as Western governments coped with those mild recessions by following the formula of increased spending during a recession, as well as Central Banks dropping interest rates. It all seemed to work, even as Western Economies started to get changed by all this government intrusion.

What is neo-liberalism? Who are Reagan and Freidman?

To be fair to Keynes he always made it clear that when the economy started growing again governments should ease up on the increased spending and start paying down their debt in preparation for the next economic downturn. Suffice to say that those aspects have been increasingly ignored.

From the mid 1960’s on, it all began to turn pear-shaped. In the USA inflation began to take off with the impact of all the spending on the Vietnam War and LBJ’s Great Society programs (also Kennedy’s neo-Keynesians mentioned earlier). The Federal Reserve tapped the interest rate brake, government spending under Nixon slowed slightly – and caused a mild recession in 1970. Releasing the brakes on both factors, the economy started growing again, but so did unemployment and inflation, something that was not supposed to be able to happen together. It got worse when recessions hit again and inflation and unemployment kept climbing through the 1970’s, with only occasional and temporary drops.

Thus was born the word “Stagflation”, followed by people paying less attention to Keynes and more to the monetary theories of Milton Friedman, as well as the economic control critiques of Friedrich Hayek from decades earlier, together with the associated politics of Reagan and Thatcher (and here in NZ, Roger Douglas, Australia with Bob Hawke) as they tried to reduce government influence in the economy.

It must be pointed out that despite all the privatisations, de-regulations and fighting over those issues, when it comes to the Big Basics of government spending and debt, it’s as though nothing has changed.

Certainly with the rise to power in the 2000’s of the likes of Bush, Blair and others, plus the shocks of things like the NASDAQ crash of ’99/00, the 9/11 attacks and of course the Great Financial Crisis of 2008, the world of Big Government spending has returned in full force.

The Great Chinese Sinus AIDS pandemic of 2020 just added rocket fuel to it all.

Amidst all this – and I’ve covered much of it already in these posts…

This is not going to get better – Feb 2019

The Great Crash of 2034 – June 2020

$5,630,859,000,000 – August 2020

… the fact was that in each of these situations in the last twenty years inflation did not take off, and while the economy recovered far more slowly than the stimulus spenders of Obama’s time had hoped for, it did at least grow, and unemployment kept going down while inflation was nowhere to be seen. These happy times became even happier under Trump as the economy boomed through 2018/19 before hitting the Covid lockdowns.

With the slow (too slow) unlocking of the economy many people figured that things would get back to normal rapidly. Yes, the Cassandra’s were still harping on about the fantastic increases in government spending, government debt and government credit creation – but we’d heard all that before.

In the case of the GFC it appears that much of that credit creation did not get into the pockets of consumers, being swallowed up by the banks instead – who did actually manage to pay Uncle Sam back for the TARP program, with interest too. Noted Keynesian economist Paul Krugman was angry that the 2008-9 stimulus programs were so small: he argued for programs in the range of $2-3 trillion and for it to go straight into the pockets of consumers.

It took a decade but that’s exactly what the $2.2 trillion CARES Act did in early 2020, followed by smaller ($900 billion) spending programs in late 2020. Then came the $1.9 trillion American Rescue Plan under Biden.

There may be more to come, with the proposed $2.3 trillion American Jobs Plan and the $1.8 trillion American Families Plan.

Krugman must be beyond joy at this moment.

Of course the thing about Cassandra was that she was telling the truth, and so in the Year of Our Lord 2021…


Dow Jones estimates had been for 1 million new jobs and an unemployment rate of 5.8%.

New jobs were 266,000 and unemployment rate rose to 6.1%.

NASDAQ news:

The consumer sentiment index unexpectedly crashed to 82.8 in May from 88.3 in April. The decrease surprised economists, who had expected the index to rise to 90.4.

“Unexpectedly”! I always love that. Perhaps if those economists had paid a visit to a US timber yard or looked at the incredible increases in commodity prices across the board they might not have been so surprised about consumer confidence. Massive and rapid increases in prices tend to do that, of which the M2 chart above is merely one indicator. Here’s a better one.

Too much money chasing too few goods: supply vs demand. The oldest rule in the economic theory book. The only question is whether the US is going to add to the demand with those spending programs?

Of course, looking at this history of the last twenty years, it may not actually make any real difference to the path the USA is on, except possibly to act as a trigger point. As always the question is whether we’ll know that the trigger has been pulled. Mixing metaphors, we can be certain that a fuse has been lit.

Written by Tom Hunter

May 17, 2021 at 10:43 am

Die MSM, Die – Closer to the Grave

In January I wondered if 2020 was going to be lit, but I never thought it would involve a pandemic.

Still, now that the crisis is slowly fading away (too slowly), it’s time to take stock of its impact on one industry: the media.

Things were already gathering pace in 2019:

The media industry continued to execute cuts in December and November as Gannett, Highsnobiety, and the CBC reduced headcounts. The cuts followed large rounds of layoffs earlier in the year from companies including BuzzFeed, Verizon, and Vice Media… Buzzfeed experienced layoffs this year. An attempt to relaunch Gawker failed. HuffPost laid off 13 in its video department. ThinkProgress shut down in September….

NBCUniversal laid off 70 employees in two rounds in August and September. In August, E! announced that as part of its decision to move it’s “E! News” show from LA to New York, it would be laying off 20 to 25 LA employees, Variety reports. In September, NBCUniversal announced that it would be laying off 45 more employees from E!, Oxygen, Bravo, and other properties, according to MediaPost….

CNN also let go about 100 employees in the spring as part of a “corporate restructuring” effort.

And this was while the rest of the US economy was booming. Then Chinese Lung Rot hit. First up was this story in February, Newspaper Publisher McClatchy Files for Chapter 11 Bankruptcy:

McClatchy Co., the second-largest U.S. newspaper group by circulation, filed for bankruptcy protection, a move that comes as the nation’s newspaper industry is struggling to cope with a sharp decline in print advertising and the challenges of building a robust digital business.

Of course we also had our own little meltdowns here in NZ, with the withdrawal of German media group Bauer Media from the country, whoich instantly wiped out old-timers like The Listener, NZ Woman’s Weekly, and a host of others.

And you’d need a heart of stone not to laugh at news like this, New California Law Just Got Hundreds Of Writers Fired:

On Monday, Vox Media-owned SB Nation announced that it was cutting more than 200 freelance writers as a direct result of California’s new law targeting independent contractors.

That’s the same AB5 law that has shut down Uber and Lyft in the supposed Kingdom of entrepreneurship. Suffice to say these idiots who reflexively support Democrats, even when they get screwed by said Democrats, are mystified about many things, Washington Post Writer Can’t Figure Out Why Trump Supporters Won’t Talk To Her:

I’ll offer a more basic answer: because these outlets, and many others like them, offer such blatantly critical and condescending perspectives on conservative Americans and their values. This is palpable even in Dvorak’s article, which rather than attempting empathy for conservative women who don’t equate feminism with pro-choice politics, simply belittles them. 

And of course there’s been four years of Russian Collusion, with CNN leading the way.

The funny thing is that CNN, and the rest of these clowns, need Trump more than he needs them. They’re almost the only oxygen they have left, as recent Fox News demolition job on CNN revealed.

CNN’s troubles started on Tuesday, when Fox News host Tucker Carlson played a tape exposing CNN President Jeff Zucker appearing to offer a quid pro quo to then-candidate Donald Trump in 2016, the New York Post reported.

Zucker told Trump lawyer Michael Cohen that he wanted Trump, whom he called “the boss,” to host a weekly show. He also touted the importance of having CNN on Trump’s side in the presidential election.

Yes! That Michael Cohen! Got that? The network that demonises Trump 24/7 was perfectly willing to cooperate with him to a great extent. And what Zucker said next captures the farce even more perfectly:

“I’m very conscious of not putting too much in email, as you’re a lawyer, as you understand,.. And, you know, as fond as I am of the boss, he also has a tendency, like, you know, if I call him or I email him, he then is capable of going out at his next rally and saying that we just talked and I can’t have that, if you know what I’m saying.

Sure Jeff, we know exactly what you’re saying. You need Trump for ratings and you actually quite like the guy personally after years of working with him – but there is no way you want that on record when you’re hanging with all your Lefty mates. That would mean shunning on an Amish scale.

Carlson followed up a couple of days later with another recorded phonemail, this time between CNN talking head Chris Cuomo (brother of NY Governor Andrew Granny Killer Cuomo) coaching Cohen for an interview of him that would be done by …. Chris Cuomo:

“I think the way this conversation goes is almost exactly the way we’re having it right now. Which is, where I say, ‘This looks shady,’ and you say, ‘It looks shady to you because you’re coming in with a specific intention,’” Carlson said, quoting Cuomo.

Cuomo instructed Cohen on how to dodge questions about a shell corporation he had allegedly used to make the Daniels payments.

That’s what CNN viewers would have seen in this “combative” and “tough” interview. There was another hit on CNN later that week when word got out that CNN host Jake Tapper had tried to pressure a U.S. Army veteran not to run against Rep. Conor Lamb (D-Pa.) – and then denied it.

All of this feeds nicely into another recent story about an MSNBC producer, Ariana Pekary, who recently resigned because she apparently couldn’t control her gag reflex any longer:

“We are a cancer and there is no cure,” a successful and insightful TV veteran said to me. “But if you could find a cure, it would change the world.”

As it is, this cancer stokes national division, even in the middle of a civil rights crisis. The model blocks diversity of thought and content because the networks have incentive to amplify fringe voices and events, at the expense of others . . . all because it pumps up the ratings.

I wonder if she heard the echoes of the past:

“Yesterday I announced on this program that I was going to commit
public suicide. Admittedly an act of madness. Well, I’ll tell you what
happened: I just ran out of bullshit.”

Symbolically one of the great American journalists died early this year, Jim Lehrer, whom I used to watch religiously on the PBS Newshour in the 1990’s. These were his Rules of Journalism., but you might as well be reading a Babylonian text.

Instead in 2020 we’re left with this:

“Television is not the truth! Television is a goddamn amusement park!. Televisión is a circus, a carnival, a travelling troupe of acrobats, storytellers, dancers, singers, jugglers, sideshow freaks, lion tamers and football players. We’re in the boredom-killing business...

But, man, you’re never gonna get any truth from us. We’ll tell you anything you want to hear, we lie like hell.. We’ll tell you any shit you want to hear…

You’re beginning to believe the illusions we’re spinning here, you’re beginning to believe that the tube is reality and your own lives are unreal! You do! Why, you do whatever the tube tells you: you dress like the tube, you eat like the tube, you raise your children like the tube, you even think like the tube! This is mass madness, you maniacs! In God’s name, you people are the reality, WE are the illusion!”

Written by Tom Hunter

September 18, 2020 at 12:00 pm

Why do Millionaires hate Billionaires?

I was pondering this question the other day while observing a hilarious interchange between two such people, Robert Reich and Elon Musk.

Reich is in many ways a creature of the distant past. An old-style American Boomer “liberal” economist who strongly pushes old-fashioned ideas like boosting the minimum wage, empowering unions, and so forth. I only know of him because he was Secretary of Labour in Bill Clinton’s first Presidential term (1993-1997). He was disappointed to find that Clinton’s famous “triangulation” strategy for winning re-election in 1996 meant that Reich’s economic ideas around labour were never implemented to the extent he wanted.

Since then he has maintained a steady patter of pushing these ideas through books and articles. He’s also on Twitter and as an example of how the world has changed, he may have been surprised to find that modern Robber Barons of our age are not the hidden figures of the 19th century but are also on Twitter, which is how the following exchange came about after Reich unloaded one of his usual scathing takes on the modern US economy.


Further humiliation followed as people began to point out one of Mr Reich’s long-standing and well-known sources of income.

According to data from 2014 Reich makes $40,000 for a 1-hour speaking engagement plus hotel, flight and food. Sweet! And it’s probably increased since then.

Down with capitalism. Up with my speaking fees.

See also, Every Billionaire is a Policy Failure.


Written by Tom Hunter

September 12, 2020 at 7:26 am


That’s what the US government has spent in the first ten months (October to July) of this fiscal year.

It hardly needs to be said that this is the largest amount of money that the government has ever spent.

The good news is that they collected $2,823,564,000,000 in taxes, also a record.

That’s also the bad news because of course it means that they’ve set a record deficit so far. Those “trillion dollar deficits” of the early Obama years?

HA! This year’s deficit is $2,807,295,000,000: a $2.8 trillion deficit. They’ll likely beat the $3 trillion mark before the fiscal year ends Sep 30.

The big spending components were:

  • $1,005,897,000,000 – Department of Health and Human Services
  • $ 915,775,000,000 – Social Security
  • $ 540,442,000,000 – Department of Defense spent
  • $ 309,415,000,000 – Net Interest

The following graph of inflows and outflows shows that this is an exceptional year, as it is for all nations, with that huge “Income Security” payout to try and compensate workers for their jobs being shut down by order of the fifty state governments – the extent of shut down differing by state. But even taking that element out we’re still talking record deficits and ones that will likely continue for years now.

The proponents of Modern Monetary Theory don’t see a problem with this of course, and it makes arguments about it almost a moot point, since the USA is effectively practising it right now. But they can only do this because, unlike a little nation like New Zealand, their currency is basically the world’s currency.

I don’t see how this can go on. But then I’ve been saying that for years now and somehow it does. Perhaps the figures just don’t mean anything to ordinary people any longer? Perhaps they don’t think it will affect them: that when the day of payment comes they’ll simply refuse and allow the institutions of federal government in far-off Washington D.C. to collapse?

See also:

The Great Crash of 2034

This is not going to get better.

Written by Tom Hunter

August 16, 2020 at 9:21 am

Birth and Taxes

Last year I wrote a little piece about an amusing bit of family history involving taxes, which involved a letter sent to my Dad by the IRD a couple of years after his return from WWII, regretfully pointing out the following:

My records show, and doubtless you will recollect, that at the time of your entry into the armed forces, there was an amount of £9.17.5d owing by you for income tax in respect of income derived during the year ended 31st March 1939.

I thought of this the other day when I saw the following piece of video on Twitter, where a Dad in the USA recorded the reaction of one of his sons getting his first ever paycheque. It becomes obvious that the Dad has a laughing suspicion of what is about to happen as his kid opens the envelope and examines the details.

At one point the kid is so obviously steamed that he has to get out of the car and walk around the back for a bit just to cool off (and perhaps uuter some words under his breath that he doesn’t want Dad to hear). One thing he says is heard clearly:

“So if I earned it, why can’t I get it?”

We’ve all been there kid.

It’s also a video reality of something that P J O’Rourke wrote years ago:

“In 1970, I got a job. It wasn’t much of a job. I was a messenger. But it brought in $150 a week and that was wealth as far as I was concerned. We were paid fortnightly. I waited greedily for my $300. But when my pay envelope arrived I found, after federal, state, and city taxes had been deducted and social security, health insurance, and pension plan payments had been made, only $160 was left.

I began yelling. ‘I’m a revolutionary! I’ve been a revolutionary since I went to college! I’ve demonstrated! I’ve rioted! I’ve done everything I could to overthrow capitalism! And what do I find when I get my first paycheck from a capitalist company? COMMUNISM!!!’

Of course, it was several years before the implications of what I yelled sank in. At that age I wasn’t listening to anyone, myself included.”

Written by Tom Hunter

July 28, 2020 at 12:10 pm

Posted in Economics & Economy, USA

Tagged with , ,

Winter is here

Winter is coming?

No! Winter is here, and in more ways than one.

From Stats NZ today:

Gross domestic product (GDP) fell 1.6 percent in the March 2020 quarter, the largest drop in 29 years, as the initial effects of COVID-19 restrictions impacted on economic activity, Stats NZ said today.

Breaking it down by sector:

  • Agriculture -1.9%
  • Mining +4.3%
  • Manufacturing -2.4%
  • Construction -4.1%
  • Retail Trade/Accom -2.2%
  • Transport -5.2%

And remember that this is a quarter almost entirely not under lockdown; only six days under Level 4 and two under Level 3.

What the hell is the GDP figure going to be like for the June quarter?


And this is where Visible Death vs Invisible Death is going to come into play – and for years to come.

The impact of making us poorer:

In other words, if real per capita GDP in New Zealand falls by ten percent due to the lockdown and other effects associated with Covid-19, life expectancy would be predicted to fall by 1.4 years.

That’s the equivalent of 8,750 dead people.

And as I pointed out in that article that’s before we look at the deaths that will arise in the short-term because of the impact of healthcare delayed or missed due to the lockdown, which has happened in every other country so must be happening here as well:

Matt Hancock, the [British] health secretary, refuses to give a figure for the potential non-Covid fatalities from this catastrophe but the cabinet was told it could be up to 150,000 avoidable deaths.

At least the British government asked the question of their public health experts.

Oh – and Australia’s 1st quarter GDP drop was just 0.3%.

Readers should also take a look at this article written by Alex Davis at The Emperor’s Robes, Both of New Zealand’s Post Covid19 Futures are Bad, where he looks at two futures:

Future 1: Covid19 is not eliminated and breaks out or returns

Future 2: New Zealand eliminates Covid19 and becomes a South Pacific Prison for its Citizens


From that second future:

Whatever hope we may have to eradicate Covid19 in New Zealand one thing is certain – it will not be eliminated from the rest of the world. So, what then? New Zealand is confronted with a lose:lose scenario. We can lower the draw bridge and let the world back in but if we do so it is highly likely we will reimport Covid19

it is highly likely someone, somewhere will slip through.

That was written on June 4, but it actually was not a hard prediction to make. Alex wraps up the detailed piece with his own pick for out future:

Eventually however whoever is in power in New Zealand will have to accept the inevitable: they will *have to* re-open the borders and watch Covid19 do what it has done everywhere else: slightly shorten the long lives of a small number of already very sick old people. Their deaths will be tragic and very public (unlike those for example of cancer sufferers whose treatment was delayed by lock down). The ship of New Zealand will come to rest exactly where it would have otherwise, Covid19 will be among us causing little harm to all but a handful, but we will be vastly indebted, causing harm to many.

One final point is that this is also another example of how crap New Zealand is at collecting and processing statistics compared to other OECD nations. It’s been two-and-a-half months since the end of the March quarter, so that means we’re not likely to see the June quarter stats until mid-September, for which the government will be grateful with the election on September 19.

Written by Tom Hunter

June 18, 2020 at 1:25 am

The Great Crash of 2034

One of the first things I wrote about here at NoMinister was an article on the disastrous debt situation in the USA, This is not going to get better.

Amidst the charts of tax revenue vs rates and the vast, unfunded liabilities that lay in America’s future, courtesy of Social Security, Medicare and Medicaid – “these three giant machines running on automatic” – I wrote the following:

The good news is that government revenue is increasing, likely hitting 16.5 percent of GDP this year, increasing to 17.4 percent in 2025, and 18.3 percent of GDP in 2029. Of course this is all built on economic models and we know how those go with assumptions of economic growth rates and so forth. For all the talk about econometric models the reality is that they’re often little different to the spreadsheets ordinary people put together. So they’ll contain smooth changes from month-to-month or quarter-to-quarter. But did anybody throw in even a bog-standard recession, something just on the order of the 1990-91 deal, with a couple of % GDP foregone?

And here we are. And we’re not looking at a 2% GDP drop but probably something much worse courtesy of government reactions to the Wuhan Flu.

You can look at that old article to see the histories of US income tax revenue vs the highest income tax rate or corporate tax revenue vs corporate tax rates, but here I want to focus on US spending and then debt, starting with this chart published just last year in 2019.

Note the sidebar of assumptions underpinning this already frightening scenario: “no more wars, no recessions”, and so forth. Note also that the biggest increase in spending comes from non-discretionary spending, courtesy of the Big Three Machines mentioned earlier.

At the same time there was an article published that looked into a future much closer than 2049, The National Debt Death Spiral:

According to the U.S. Treasury Department’s Office of Debt Management, the U.S. government is just five years away from the point of no return.  With the national debt spiraling quickly out of control, there are only a few years left before every single dollar the government borrows will go toward funding interest payments on the national debt.

Interest payments only: not for paying the debt down. This is Ponzi Scheme territory. More specifically it’s the tipping point for when the scam starts to collapse. It’s also why you can look forward to a temporary future of near-zero, zero or even negative interest rates: “temporary“.

And that’s just the Federal situation. There are a number of territories and smaller cities that have already plunged through this event horizon :

In bankrupt San Bernardino, a third of the city’s 210,000 people live below the poverty line, making it the poorest city of its size in California. But a police lieutenant can retire in his 50s and take home $230,000 in one-time payouts on his last day, before settling in with a guaranteed $128,000-a-year pension. Forty-six retired city employees receive over $100,000 a year in pensions.

Almost 75 percent of the city’s general fund is now spent solely on the police and fire departments, according to a Reuters analysis of city bankruptcy documents – most of that on wages and pension costs.

Larger cities like Chicago are rapidly approaching the same point, with their debt now rated at Junk Bond levels, and the state of Illinois unable to help because they’re in the same shape.

And then there’s the wider economic problem that derives from the government spending priorities:

A couple of years ago there was somewhat of a kerfuffle in the more sober precincts of the MSM when a story circulated that after his economic advisors presented these post-2024 debt tipping point arguments and data to President Trump his response was (paraphrased): “I won’t be President by then so what does it matter?“.

Naturally the articles lambasted Trump for this selfish and cavalier attitude to spending and debt, but that outrage only lasted a day because everybody knew the terrible truth.

  • It’s a bi-partisan attitude in D.C;
  • almost every politician there (bar Rand Paul and a few House members) is in on it;
  • all of them are too terrified of the fallout that would happen from trying to fix it.

Trump’s 2020 budget produced earlier this year went on to prove the point, as this article demonstrated with comparisons of the MSM coverage of Trump’s budget and the actual forecast numbers. First the MSM headlines:



Holy shit! Trump was proposing huge spending cuts in domestic programs? That’s great news!

If only it was true.





This would be the same under any President and any Congress, courtesy of those screaming headlines. Nobody dares to cut spending; even the “cut” of $4.4 trillion noted above was merely a plan to spend less than the baseline spending increases assumed at the start of the budget process.

And remember that all of the above was before the latest economic crisis hit the USA, which has produced the following astounding graph from the US Central Bank, the Federal Reserve:

As you can see the Fed had only just started to finally rid its balance sheet of the debt piled up from the GFC before the Chinese Lung Rot hit the fan. As this article pointed out:

The federal debt had topped $24 trillion for the first time on April 7, 2020.

It then climbed another trillion dollars in just 28 days, topping $25 trillion for the first time on May 5.

Only 35 days had elapsed from when the debt topped that $25-trillion threshold on May 5 to yesterday, when it topped $26 trillion for the first time.

It took about two hundred years for the USA to pile up $2 trillion in Federal debt, hitting that figure in 1983.

Now it has taken just 63 days.

The following chart shows how the debt load is not only increasing but even the rate of acceleration, as is the case with Ponzi schemes. No private business would see this as anything than the stuff of sleepless nights between daytime nightmares.

I’ll finish with this quote from John Stossell, which I especially like because it takes my original article title of “This is not going to get better” and sharpens it:

“We have piled deficit upon deficit, mortgaging our future and our children’s future,” warned Ronald Reagan. “We must act today to preserve tomorrow.”

Bill Clinton said, “We’ve got to deal with this big long term debt problem.”

Barack Obama called driving up the national debt “irresponsible” and then proceeded to do exactly that.

Donald Trump complained that Obama “doubled” the nation’s debt. But now, under Trump’s presidency and the new CARES Act, our debt will grow even faster.

This will not end well.

Even a so-called V-shaped economic recovery would not change this very much.

For all the talk of pandemics and now riots it is this story about the USA that should truly scare you. It is not Antifa or BLM or any other bunch of fanatics and idiots that will destroy the USA but the age-old problem of debt. Take your pick as to the crunch date, mine is 2034!

One of Adam Smith’s famous economic observations was made to a pupil concerned that the massive growth of debt in Britain during the Napoleonic Wars would ruin the nation. That debt would eventually reach 200% of GDP but Smith assured the student that “there is a great deal of ruin in a nation.“, and that proved to be the case, but not without a lot of pain being inflicted in the following two decades.

Same here via Rand Paul’s “Pennies Plan” alternative Budget, although I can’t help feeling that the USA is pushing the outside of the envelope awfully hard on Smith’s maxim.

Written by Tom Hunter

June 14, 2020 at 7:00 pm

A different economic starter motor

Although Germany has lost her way occasionally over the last century she’s been in pretty good economic shape for some decades now. Possibly a little too good if you listen to some other members of the EU, particularly the likes of Greece, Italy and Spain, who grumble about the huge German trade surpluses and their tight control over the value of the Euro via the EU Central Bank.

Those nations relied for decades upon devaluation of their money as a key economic tool and since it has gone they’ve struggled to impose upon themselves the sort of economic discipline the Germans are famous for.

But you can hardly blame the Germans for their paranoia about the  value of money. Twice in the last hundred years they have suffered terrible bouts of inflation that wrecked their economy.

Let’s make paper machie out of it!

The most well-known of these is the hyperinflation that hit Germany just after World War I had ended. So much money was printed by the government that children played with it various ways.

To be worn only once

But there actually was a second period of inflation that is not as well known, mainly because it was not quite as bad, the goverment kept a lid on the pressures it created, and it was soon put in the background by the World War II.

All of this is documented in an article first published in 1978, The German Non-Miracle, which looked at what Germany did to re-start it’s economy after WWII ended. It should be a valuable lesson as to how the world today gets out of our locked down economies.

Germany faced a similar problem to what we have now: it had suffered a supply shock, courtesy of having almost all its industries and business smashed in the war.

The advantage we have is to have not suffered physical destruction.

But the problem of re-starting the economy is similar.

Governments the world over are doing what they usually do – applying Keynesian solutions by printing vast quantities of new money and regulating the hell out of everything.

But Keynesian economics is really designed to deal with demand shock recessions like the Great Depression, where money seems to just vanish out of the economy and demand shrinks. In that situation having the government push money into the economy via a central bank, and to a lesser extent by increased spending, is a workable solution, within boundaries (all economic theories have boundaries).

The Keynesian approach has proved itself for things like the 1987 Stock Market crash, the Asian crisis of the late 90’s and, to a lesser extent, the GFC of 2008-09. But even with that last one there were signs that it had reached its limits. Economic growth barely recovered at all, despite all the trillions thrown around by governments. That likely had a lot to do with the fact that most Western economies were already heavily indebted both publically and privately. People were simply leary of taking on more debt to “recover”, even when it was being given to them cheap, or for free (no interest).

It should also be noted that – very much against Keynes own advice – when economic growth resumed, most governments did not get around to paying down all that debt from the credit they’d created. Keynes’s basic lesson was that you don’t try and balance the budget during a recession: you let it go into deficit but when the economy improves you run surpluses and pay it down. New Zealand was one of the few nations that did that after the GFC, and Michael Cullen and Bill Birch did the same in an earlier period, although I think Cullen went overboard, running huge surpluses even after the debt was largely paid down. All that did was increase private debt.

But Keynesian economcs has also failed, most notably with the smaller recessions of the 1960’s and 1970’s, when no amount of stimulation seemed to work. In fact we got “stagflation”, inflation while an economy was moribund or even in recession; something that Keynesian theory said could not happen.

This lesson had actually been learned by the Germans via their inflationary periods; sometimes just throwing money at the economy doesn’t work:

Under the Third Reich, the German government had financed a colossal industrial build-up to accommodate the designs of the Nazi war machine. The tremendous industrial expansion was paid for with rampant monetary expansion. All the screws of the Nazi State had to be tightened to their breaking point to suppress the resultant inflation; the guns of the Gestapo turned on black marketeers and others who sought to evade the officially posted prices of goods and services. The result of the effective price controls under Fascism was the explosion of liquidity after Fascism.

And that explosion of liquidity meant inflation after 1945 – lots of it Worse, to combat this the Allied governments in charge of West Germany went for controls:

Government policy fluctuated among the vengeance of the French, the reformist zeal of the British (Labourites), and the bewilderment of the Americans. About the only consensus to be found anywhere was to rely on economic controls.

In an effort to forestall the inevitable realignment of money and prices, the Allied commanders of France, Britain, and the United States slapped on an extensive control network that fixed wages and prices at preinflation (1936) levels.

The victors attempted to administer the economy through a patchwork assortment of price regulations, allocation details, and rationing.

Setting prices back a decade might have sounded smart but the actual price of resources had moved on:

The economically obvious occurred: goods disappeared from legal markets and were sold illegally at prices far above the official prices. Severe misallocation of resources took place

The stupendous gap between the legal and illegal prices grew to such proportions that a general collapse of the currency ensued. People resorted to barter, and German cities typically saw a mass exodus on weekends as city-dwellers flocked to the countryside to trade with the farmers in kind.

In the fall of 1946 the mechanism had reached bankruptcy, the officially rationed food allotment being under 1,500 calories per person per day.

Clearly things could not go on like this, so a debate began inside Germany itself, rather than with the Allied controllers. The debate settled down into two predominant schools of thought: the Social Democrats and the “Freiburg School.”

The major SPD [Social Democrats] economic ideologue was Dr. Kreyssig, who in June 1948 told the 18th Bizonal Economic Council that, since the society had been under control for such a long period, any decontrol or currency reform would be ineffectual. To Dr. Kreyssig’s mind, not only would recovery not follow, but collapse was inevitable if prices were set free; the only course for the German economy was one of strong central direction. Another SPD spokesman was Herr Schoettle, who joined the argument against free markets by claiming that the task of reconstruction was too big for individual enterprise alone—massive State involvement was imperative if Germany was to recover.

And all of this would also be primed with lots of credit:

Not surprisingly, the Social Democrats favored an aggressive fiscal and monetary expansion policy and the “full employment” policies that had gained political popularity elsewhere. The SPD was joined in this expansionary position by the labor unions, the British authorities, most German manufacturing interests, and, in a slightly more moderate tone, by the Americans.

The Freiburg school – named after the University of Freiburg where a liberal resistance movement to the Nazis had started during the war, safely couched in talk of economic freedom – took a different approach: the Soziate Marktwirtschaft.

The idea of a “socially conscious free market,” as the translation goes, was that totalitarianism is the evil to be most guarded against and that the only way to prevent tyranny is to promote freedom. The theory spread freedom across political and economic lines and espoused a policy of noncontrol—by either the State or individuals—of individual choice. 

In other words it was philosophy first and the economics flowed from that.

The Freiburg approach was not laissez-faire: government was to be active in promoting competition and protecting free markets from monopoly, public or private. It also allowed for a small degree of wealth redistribution through graduated income taxation and social welfare programs, but it was insistent on keeping tax rates low enough to prevent economic disincentives to productive effort.

So not the cut-throat ruthlessness with which opposition to Keynesians and Central Big Government is always cast. Somewhat to their own surprise the Freiburg school won and although they had a lot of intellectual grunt it seems just as likely that the SDR side lost because the German people were psychologically scarred by the idea of printing money and creating credit. They didn’t need an economics degree and they knew it less intellectually than in their gut.

The Freiburgers did not just fight an academic battle. They had a specific plan which you can read in detail at the link but which summarised as:

  • Create a new currency, with a central monetary authority and held to what would nowadays be called a monetarist perspective.
  • Tight money policies would be pursued to create ‘buyers’ rather than ‘sellers’ markets.
  • Decontrol the economy by eliminating what they called “the strangling devices of economic repression … ‘directing,’ ‘licensing,’ ‘prohibiting,’ and what not.” One exception that should be noted was that rent controls were retained all through the 1950’s.
  • The German people would be allowed to produce. Looking at the destruction around them was a powerful incentive, but they had to be freed from controls to take advantage of that as well as giving incentives to saving, investment, and overtime
  • There would be expenditures on social welfare through transfer payments, and they would be comparable with those of other European nations.
  • However, the State would abstain from further economic intrusions via “full employment” policies, subsidies, and income redistribution.
  •  The government would push steadily and firmly for free(..ish) trade with the rest of Europe since exports would have to be a big part of the recovery. This would take years but it led to the European Commission on Coal and Steel and then to the EEC.

I did have to laugh at this comment about the price controls by the most prominent political member of the Freiburg school, Ludwig Erhard, when they were dumped in June 1948:

“It was strictly laid down by the British and American control authorities that permission had to be obtained before any definite price changes could be made. The Allies never seemed to have thought it possible that someone could have the idea, not to alter price controls, but simply to remove them.”

The effects were dramatic and almost instantaneous, as two non-German observers, Jacques Rueff and Andre Piettre, reported:

“Only an eye-witness can give an account of the sudden effect which currency reform had on the size of stocks and the wealth of goods on display. Shops filled up with goods from one day to the next; the factories began to work. On the eve of currency reform the Germans were aimlessly wandering about their towns in search of a few additional items of food. A day later they thought of nothing but producing them. One day apathy was mirrored on their faces while on the next a whole nation looked hopefully into the future.”

Industrial output increased 50 percent within the year, and national income, which had fallen 20% below that of 1936, was restored to that level in just over a year and continued to climb fast. Unemployment did climb and peaked at 10.4% by 1950, but steadily dropped for the rest of the decade.

Morever, this approach beat the publicised plans of the proponents of central planning. Their “Long Term Plan of 1948 predicted that by 1952-53 the industrial  production would reach 110 percent of the 1936 level and agriculture 100%. Another study done in 1950 by four German research institutes – which supposedly already took account of things like the Marshall Plan, the Korean War and the success of the Freiburg plan to that date – said that five years would be needed by government planners to hit their goals – and needed another $1.5 billion in US aid beyond the Marshall Plan.

Under the Freiburg plan all those targets were met and exceeded: Industrial production in 1952-53 averaged about 150 instead of 110. Net agricultural output was 111 percent of pre-war instead of 100. The overall balance of payments was highly favorable and even the dollar sector was approaching balance.

It should be no surprise that Ludwig Erhard would become Economics Minister in the Adenauer administration from 1949-57 and then Chancellor from 1963-66. Such are the fruits of success for politicians who don’t go down the path of centralised command and control route of their peoples but are willing to stand and argue for individual freedom in all spheres of life.

Written by Tom Hunter

May 20, 2020 at 11:42 pm

Die MSM, Die – I’d buy that for a dollar!

Actually I would buy Stuff for $1.00 – but only for the pleasure of firing Alison Mau. In fact I might pay more for that experience.

It really is true that in every crisis there is always a silver lining. And with this news, it’s a big, bright silver ring of light:

Stuff’s Australian owner says it terminated talks with New Zealand media company NZME last week. 

NZME, owner of the New Zealand Herald and Newstalk ZB, said in a statement to the NZX on Monday morning that it was seeking urgent legislation to allow it to buy rival publisher Stuff “for $1″by the end of May.

One dollar? $NZ 1.00? That’s less than Newsweek was sold for a few years ago, which was $US 1.00.

This comes on top of the withdrawal from new Zealand of German media group Bauer Media several weeks ago, which decision destroyed long-lived magazines like The Listener and the NZ Woman’s Weekly.

Awwwww…! Where will we Righties get our weekly, local TDS from now, plus our glossy fix of Kate and Meghan and Jacinda and Neve and Gaylord?

The NZ Herald of course – and TVNZ, RNZ, TV3 and so forth.

I did have to laugh at DPF’s take on this over on Kiwiblog:

The idea of the Government passing a special law to allow the two main print media companies to merge is abhorrent. This would create one mega company that would be politically beholden to the Government.

You mean more than TVNZ and RNZ are now as SOE’s? And in what way would the NZ MSM’s worshipful coverage of St Jacinda of Corona differ from what it has been, complete with brain-dead questions that never even got to the heart of what was going on.

At the time of the Bauer decision none other than wailed about this, “So many livelihoods, so much devastation“.

But the writing was on the wall for them too as the dreaded Chinese Kung Flu would go on to devastate the MSM even further and force Stuff itself to put out a begging bowl a couple of weeks ago:

Stuff has a long and trusted history of telling New Zealand stories. Through some of our newspapers, that dates back more than 150 years.

Now, as with many other news organisations here and abroad, you can make a direct digital donation too. Donating supports Stuff’s mission to report your stories without fear or favour, and with fierce independence – it directly contributes to powering newsrooms across New Zealand.

I’d like to think they were drunk when they wrote that: a wild last spree before hanging in the morning. This is the MSM source that basically won’t allow any but the mildest right-wing critiques of various issues to sully its comment sections.

It appears that that this announcement by NZME has temporarily stopped talk of a sale as the Australian owners of Stuff, Nine, have walked away from any discussions.

But only for a while. The relentless economics of the situation will force everybody’s hand on this sooner or later. If NZME and Stuff don’t merge the latter will simply collapse, leaving NZ effectively with the situation envisioned by DPF. Even that won’t matter because the NZ Herald won’t be far behind them.

Having started with one 1980’s movie classic I’ll finish with a 1991 movie, Other People’s Money

Despite the year it was made it captured the 80’s zeitgeist because it was based on the 1987 play of the same name. It’s nowhere near as well known as Wall Street, probably because the original play was twisted into a happy ending by Hollywood and the bad guy is played by Danny DeVito, who is no Michael Douglas.

Still, DeVito’s character, known as Larry The Liquidator, gives one of the all-time great speeches about the brutal realities of the marketplace, from which the quote below is probably the most well-known – and in this case the most appropriate:


We’re dead all right. We’re just not broke. 

And do you know the surest way to go broke. Keep getting an increasing share of a shrinking market. 

Down the tubes. Slow but sure. 

You know, at one time there must have been dozens of companies making buggy whips. 

And I’ll bet the last company around was the one that made the best goddamn buggy whip you ever saw. 

Now how would you like to have been stock holder in that company?

Written by Tom Hunter

May 11, 2020 at 6:00 pm

A picture is worth a thousand graphs

I wish I’d seen this graphic when I published Visible Death vs. Invisible Death a few days ago.





Produced for those complaining about articles that have too many words, numbers and graphs.

Having said that, here’s a very cool graph from Snopes of the progress of the virus. An interesting way of portraying the data, at least up to early April.



Written by Tom Hunter

April 28, 2020 at 11:14 pm